Gold has always been considered a good investment option. Earlier, people used to buy gold in physical form but today there are many indirect ways of investing in gold.
Gold mutual funds and gold ETFs are two indirect ways for investors to invest in gold. However, there are several key differences between the two. Investors must carefully understand the purposes of different investment instruments to make wise decisions.
The Basic Difference
Gold Mutual Fund primarily invests in gold-related assets such as gold mining companies, gold bonds, gold ETFs and gold etc while gold ETFs (Gold Exchange Traded Funds) are backed by physical gold and track the price of gold.
Gold Mutual Funds are priced based on the Net Asset Value (NAV) of the fund and are priced once a day after the market closes.
Gold ETFs are tied to the price of gold. They are bought or sold like stocks at any time during the trading day. It is an alternative to investing in physical gold without worrying about storage and theft.
[Must Read: Types of Mutual Funds]
Gold Mutual Fund vs. Gold ETF – Detailed Comparison
|Feature||Gold Mutual Funds||Gold ETFs|
|Price||is decided based on the NAV of the fund.||is tied to the price of physical gold.|
|Diversification||offer more diversification as they can invest in a variety of gold-related assets.||Only invest in physical gold.|
|Liquidity||lower liquidity than Gold ETFs||greater liquidity than gold mutual funds|
|Demat Account||Not needed||Needed|
|Expense Ratio||Greater Expense Ratio||Lower Expense Ratio|
|Minimum Investment||INR 1000 (as Monthly SIP)||The price of one gram of gold|
|Mode of Investment||both lump sum and SIP||Lump sum only|
|Who Should Invest||Investors with low-risk tolerance||Investors who want protection against inflation|
Which one is a better investment?
It is to be noted that there is no formula to tell which one is better. As a general rule, Gold mutual funds are good for those who want to invest a recurring amount every month. On the other hand, a lumpsum amount invested in Gold ETFs can be a good long-term investment strategy.
But the answer solely depends on the investor’s financial goals, investment amount and risk tolerance capacity. However, both of them are considered secure investments, they can help you diversify your portfolio.
[This May Help: How to Choose the best mutual fund]
The Final Words
Having many options to invest in gold is a good thing but making a wise investment decision is equally important. Investors must carefully choose where to invest and how to invest. It is also a good idea to talk to an expert before making any decision.